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Sugar prices go vertical, to 28-year highs, on shortage fears

The hottest investment of the summer is in your cupboard: Sugar prices have reached 28-year highs today, continuing a bull market surge that has lifted the commodity 88% since Jan. 1.

With too little rain in India and too much in Brazil, sugar production forecasts for those countries have been slashed, deepening concern about global shortages.

Prices have been rising steadily since early April, but now they’ve gone vertical: Near-term world sugar futures in New York have rocketed to 22.2 cents a pound today, up 6.7% since Friday and up 20% in the last two weeks.

Global demand will exceed output by as much as 5 million tons in the year through September 2010, leading to a record two-year shortfall, according to the International Sugar Organization in London.

"India may advance to the largest sugar importer in the world, after it had been an important net exporter up until last year," Eugen Weinberg, an analyst at Commerzbank AG in Frankfurt, said in a report last week.

Prices also are being bolstered by excess rain in Brazil, the world’s largest producer, which has reduced the crop’s sucrose content.

In China, the third-largest producer, the next harvest is likely to lag behind domestic demand by 1.5 million tons on reduced acreage, Weinberg wrote. A smaller Russian crop because of hail and drought should mean imports of 2 million tons this year, according to Commerzbank.

Soaring prices for the commodity have raised alarm among U.S. food companies. A coalition including Kraft Foods and General Mills wants the Obama administration to increase sugar-import quotas, warning that the nation "will virtually run out of sugar" if restrictions aren’t eased.

The Sugar Policy Alliance, which also includes Mars Inc., Krispy Kreme Doughnuts Inc. and Hershey Co., wants to import more from Brazil, the world’s largest producer of the sweetener, the Philippines and elsewhere, according to a letter sent to Department of Agriculture Secretary Tom Vilsack.

"Without allowing additional imports to enter the market, consumers will pay higher prices and domestic food manufacturing jobs will be at risk," the alliance said in a statement.

The U.S. limits sugar imports to benefit domestic sugar-beet and cane growers, keeping domestic prices well above world levels.